Financial regulators Monday banned the kinds of in-house deals that may have contributed to the the bankruptcy of MF Global and the downfall of Jon Corzine, the former New Jersey Democratic governor and senator whose ties to Wall Street once made him a possible contender to become the next Treasury secretary.
The Commodity Futures Trading Commission voted 5-0 on a rule stemming from the Dodd-Frank reforms that limits how futures brokerages can invest their customers? money.
Continue ReadingMF Global, where Corzine had served as the chief executive, is missing an estimated $1.2 billion in customer funds, though it?s unclear whether the brokerage siphoned off client money through repurchase agreements that are now forbidden by the rule. The agreements allowed the brokerage to borrow from its customers.
Corzine, among others, lobbied the CFTC earlier this year to postpone finalizing the rule, which also prevents brokerages from investing customer money in foreign sovereign debt.
?We proposed this rule in October 2010, and since then, I have consistently felt the CFTC needed to finalize it to ensure customer funds are protected,? CFTC chairman Gary Gensler, who worked with Corzine at the investment bank Goldman Sachs, said in his opening statement at a Monday commission meeting. ?This rule is important, but the agency will look at additional ways to enhance customer protections.?
MF Global and Corzine have emerged as prime targets for Republicans in Washington, with the House Agriculture Committee issuing a subpoena to have the former governor testify at a Thursday hearing. The House Financial Services Oversight and Investigations subcommittee will hold a separate hearing on December 15.
A tight budget might cause the CFTC to struggle implementing the rule, as Congress approved a $205 million budget for the agency - lopping more than $100 million off the 2012 request from President Barack Obama.
?Without funding, the CFTC simply does not have enough cops on the beat to patrol the high-crime area that Wall Street has become,? said Dennis Kelleher, president of Better Markets, a nonprofit advocating for greater transparency in the financial markets.
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